Legislature(2011 - 2012)BARNES 124
02/08/2011 10:15 AM House ECON. DEV., TRADE & TOURISM
| Audio | Topic |
|---|---|
| Start | |
| HB119 | |
| HB120 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 119 | TELECONFERENCED | |
| *+ | HB 120 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 119-AIDEA: PROCUREMENT; PROJECTS
10:19:24 AM
CO-CHAIR HERRON announced that the first order of business would
be HOUSE BILL NO. 119, "An Act relating to the procurement of
supplies, services, professional services, and construction for
the Alaska Industrial Development and Export Authority; relating
to the definition of 'own' for the economic development account;
relating to the definitions of 'development project', 'plant',
'facility', and 'project' for the Alaska Industrial Development
and Export Authority; and providing for an effective date."
10:19:42 AM
TED LEONARD, Executive Director, Alaska Industrial Development &
Export Authority (AIDEA) and Alaska Energy Authority (AEA),
Department of Commerce, Community & Economic Development
(DCCED), informed the committee Mr. Davis would respond to the
four questions submitted by Chair Herron on 2/3/11.
10:20:13 AM
MARK DAVIS, Economic Development Officer, Alaska Industrial
Development & Export Authority (AIDEA) and Alaska Energy
Authority (AEA), Department of Commerce, Community & Economic
Development (DCCED), said that Chair Herron's first question
asked whether AIDEA's purpose for investing in Limited Liability
Companies (LLCs), or other legal entities, is to avoid risk. On
the contrary, Mr. Davis assured the committee the purpose of
investing in an LLC is not so AIDEA can invest in projects with
higher risks, but to allow AIDEA to participate in projects that
are currently prohibited. In fact, the primary objective is to
strengthen AIDEA's position when investing in a percentage of a
project; furthermore, private capital investors have advocated
for this change. He stressed that AIDEA is not looking to
engage in riskier enterprises, but for a way to leverage funds
and to work with the private sector. A facet of AIDEA's
strategic plan calls for partnerships with the private sector
because, he said, "Working with the private sector is a good way
to validate the investment. If private capital is interested in
the project, then it probably makes sense for AIDEA to look at
it carefully." Chair Herron's second question asked for
examples of projects that the proposed legislation would allow.
Mr. Davis gave the following examples: Fuel storage at the Ted
Stevens Anchorage International Airport is probably authorized
under current definitions covering the transportation of natural
resources, but the proposed legislation will clarify this
authority; Current legislation allows AIDEA to build roads that
are directly tied to a particular project, but the proposed
legislation will allow AIDEA to build roads otherwise. Again,
the purpose of the proposed legislation is "so that we don't get
into fine issues of legal interpretation. We felt it better
just to seek clarification from the legislature."
10:22:43 AM
CHAIR HERRON invited Representative Holmes to speak to the
committee about an opportunity for economic development.
10:23:23 AM
REPRESENTATIVE LINDSEY HOLMES, Alaska State Legislature, advised
the committee that the state's efforts to diversify its economy
should look beyond the big industries of oil, gas, and mining.
She said the Anchorage and Fairbanks airport systems serve as
air cargo hubs and present Alaska with an economic opportunity.
In 2004, Alaska and Hawaii were recognized by federal law as the
only states in which an international carrier can offload cargo
coming into the U. S. "without being considered to have broken
their international journey." This means a carrier can land in
Anchorage or Fairbanks and in addition to refueling, can offload
cargo onto another carrier, transfer it, or exercise other
options. Representative Holmes pointed out this is a huge
advantage for carriers - and those serving Asia in particular -
that are shipping products to the U.S. Two carriers are
presently taking advantage of this opportunity, and their
operations on the ground support additional jobs in all facets
of aviation and related industries. Representative Holmes
opined this is an economic opportunity that is not fully
utilized.
10:26:06 AM
CHAIR HERRON asked for any suggestions on how to take advantage
of this opportunity.
10:26:16 AM
REPRESENTATIVE HOLMES urged legislators to "spread the word" in
any manner possible.
10:26:39 AM
CHAIR HERRON suggested that the committee write a letter to
appropriate entities.
10:26:55 AM
REPRESENTATIVE TUCK remembered that passenger airlines are
taking advantage of this law.
10:28:15 AM
MR. DAVIS continued with AIDEA's response to Chair Herron's
question concerning procurement, and explained that on the issue
of procurement AIDEA seeks to be treated like other public
corporations such as the Alaska Housing Finance Corporation
(AHFC). The changes proposed in HB 119 would provide
flexibility so the board of directors, or the executive
director, could make more use of business opportunities that
arise. Furthermore, the current procurement process is "not
commercially reasonable" because AIDEA's projects are generally
not related to development projects affiliated with the
Department of Transportation & Public Facilities (DOTPF), such
as the Alaska Ship & Drydock Inc. project in Ketchikan. He also
confirmed that the proposed changes do not have an effect on the
Davis-Bacon Act regarding procurement, nor on the business and
professional licensing requirements.
10:30:48 AM
REPRESENTATIVE P. WILSON asked whether AIDEA reports all of its
projects to the legislature annually.
10:31:22 AM
MR. LEONARD said AIDEA presents an annual report to the
legislature each January that identifies all of AIDEA's projects
and gives financial and other information. In further response
to Representative P. Wilson, he said copies are sent to all
legislators, and he offered to provide additional copies.
10:33:11 AM
MR. DAVIS, in response to Representative P. Wilson, said AIDEA
would also provide copies of the information regarding the
activities of economic development agencies in other states.
10:33:33 AM
REPRESENTATIVE P. WILSON then asked whether information on any
LLCs created by AIDEA would be included in its reports to the
legislature.
10:33:58 AM
MR. LEONARD assured the committee that an LLC would be included
by AIDEA in its financials and reports to the legislature.
10:34:18 AM
MR. DAVIS re-stated that the changes to the procurement code add
flexibility, but still include all the award-bid requirements of
Alaska businesses, the Davis-Bacon Act, and public processes
through regulation. Chair Herron's next question asked about
the change in the composition of AIDEA's board of directors from
three government officials and two members of the public, to the
commissioners of the Department of Revenue (DOR) and DCCED, and
five members of the public. Mr. Davis said this change was not
sought by AIDEA, but it seems to be working well; in fact, the
new board will provide a broader range of geographic and
business expertise. The final question asked AIDEA to identify
the other groups that were studied before the bill was drafted.
In response, he said the states of New Jersey, West Virginia,
Wyoming, and North Dakota, and related private organizations,
were consulted. Mr. Davis pointed out that other states have
changed the responsibilities of their economic development
agencies in order to respond to changes in their economies. For
example, the Port Authorities in Ohio are now able to engage in
housing, recreation, education, government operations, culture,
or research. Although this is a broad range of projects, the
Port Authorities, like AIDEA, are under the constraint of making
a return on investment for each project. Mr. Davis concluded
that the survey of other states' agencies revealed a need for
the inclusion of research-related and development-related new
technologies in the bill. If the bill is enacted, AIDEA can
provide financing, or partial financing, through the mechanism
of an LLC.
10:38:26 AM
REPRESENTATIVE TUCK asked for further explanation of the effect
of an LLC on AIDEA's liability in a partnership.
10:39:09 AM
MR. DAVIS explained that LLCs were authorized in Alaska in 1997,
although they have been used in other states for some time. An
LLC acts as a partnership, but the liability of each partner is
limited to the assets put into the LLC. In a traditional
partnership, all of the partners are liable for all of the
assets of the partnership. An LLC can file a partnership return
with the Internal Revenue Service (IRS) if desired. The assets
AIDEA puts into its business operations are AIDEA's only
liability thus if it fails, that investment is the only loss.
Also, an LLC can be managed by a managing partner instead of the
cumbersome board meetings, shareholder votes, and governance
mechanisms required by a corporation. Speaking from his
experience, Mr. Davis opined there has been growth in the number
of LLCs created, and AIDEA will join this modern trend.
10:41:22 AM
REPRESENTATIVE GARDNER asked whether the use of an LLC would
encourage AIDEA to enter into risky ventures; in fact, would
there still be an incentive for AIDEA to "maintain its prudent
and cautious approach to participation and investment."
10:41:53 AM
MR. LEONARD affirmed that an LLC is an investment mechanism on
governance and AIDEA's mission is to provide economic
development and investment, but not risky investments. The
agency must still show that an investment will pay back any debt
at a rate of return that will allow AIDEA to continue to fund
projects. Bad or risky investments will limit AIDEA's
resources, in addition to garnering public and legislative
pressure.
10:43:39 AM
REPRESENTATIVE GARDNER then asked whether the proposed expanded
powers could enable AIDEA to bypass the public process,
particularly in unorganized areas.
10:44:20 AM
MR. LEONARD assured the committee AIDEA would still have to go
through its normal procedures. In an unorganized area, or if
AIDEA is going to invest in, or issue more than $6 million in
bonds, it is required to use a public hearing process.
Furthermore, in an unorganized area, the governor's office must
set up a task force or committee to take public testimony and
report back to the board. He was unsure if certain contracts
also require public hearings.
10:45:27 AM
REPRESENTATIVE GARDNER said, "So if you hold these public
hearings and have the task force and the public objects, does
that have the strength to stop the process, or can AIDEA go
ahead?"
10:45:37 AM
MR. LEONARD expressed his understanding that objections are
conveyed to the board, but the board could still proceed with a
project over the public's objections. He deferred to Mr.
Bjorkquist.
10:46:13 AM
BRIAN BJORKQUIST, Senior Assistant Attorney General, Labor and
State Affairs Section, Department of Law (DOL), explained that
if bonds in excess of $6 million are issued, there would have to
be consent for a project by the local governing body. However,
if there is not bond financing, and the location of the project
is in an unorganized borough, a regional resource advisory
council would have to be consulted prior to the execution of
contracts, but it would not "have approval process."
10:47:13 AM
MR. LEONARD assured the committee that AIDEA would probably bond
for a road. In further response to Representative Gardner, he
clarified that the current statute allows AIDEA to invest in
projects under $10 million. He acknowledged that the proposed
legislation could increase the number of projects AIDEA invests
in under $10 million; however, he urged the committee to think
of the proposed changes as a "tool ... and if the mission for us
is to expand and diversify the economy we're asking for the
tools that we believe that we need." He opined the annual
report and the composition of the board of directors provide
safeguards for projects under $10 million, and any project over
$10 million would be bonded and would go through the
legislature. Mr. Leonard stressed that AIDEA has the internal
capacity to invest in any project under $10 million.
10:49:28 AM
CHAIR HERRON closed public testimony.
10:49:53 AM
REPRESENTATIVE OLSON reminded the committee Amendment 1 permits
AIDEA to create subsidiary corporations which complement the
proposed provisions in HB 119 that allow the agency to form an
LLC as a means of owning and operating a development project.
The language in the amendment grants powers equal to those held
by AHFC.
[Amendment 1 was previously provided and read:
Page 1, line 5, following "Authority;":
Insert "relating to the Alaska Industrial
Development and Export Authority creating subsidiaries
regarding projects financed under AS 44.88.172;"
Page 2, following line 24;
Insert a new bill section to read:
"*Sec. 3. AA 44.88 is amended by adding a new
section to read:
Sec. 44.88.178. Creation of subsidiaries.
The authority may create one or more subsidiary
corporations for the purpose of acquiring,
construction, owning, or financing a project financed
under AS 44.88.172. A subsidiary corporation created
under this section may be incorporated under AS
10.20.146 - 10.20.166. The authority may transfer
assets of the authority to a subsidiary created under
this section. A subsidiary created under this section
may borrow money and issue bonds as evidence of that
borrowing, and has all the powers of the authority
that the authority grants to it. Unless otherwise
provided by the corporation, the debts, liabilities,
and obligations of a subsidiary corporation created
under this section are not the debts, liabilities, or
obligations of the authority."
Renumber the following bill sections accordingly.]
10:50:50 AM
MR. LEONARD indicated AIDEA's support for the amendment.
10:51:02 AM
REPRESENTATIVE GARDNER asked whether AIDEA requested the
amendment.
10:51:08 AM
REPRESENTATIVE OLSON said, "To the best of my knowledge."
10:51:33 AM
REPRESENTATIVE MUNOZ asked whether a subsidiary corporation
could help manage federal receipts that are coupled with a state
match and other sources of revenue.
10:52:31 AM
MR. LEONARD said AIDEA does have the powers to invest in
interties, and deferred the question to Mr. Bjorkquist.
10:52:58 AM
MR. BJORKQUIST said yes, a subsidiary corporation could be used
for that type of a project.
10:53:16 AM
REPRESENTATIVE GARDNER asked for the effective difference
between the ability to form an LLC under the proposed bill, and
the ability to form a subsidiary corporation.
10:53:37 AM
MR. DAVIS explained that a subsidiary corporation would usually
be wholly-owned by AIDEA, unlike an LLC with one or more
partners. Also, a subsidiary corporation can be set up as a
mechanism to accept funds from another source, as in the
intertie example.
10:54:41 AM
MR. LEONARD added that a subsidiary has broader powers; in fact,
AIDEA could transfer the power to issue bonds and incur debt
while shielding itself from the debts, liabilities, and
obligations of the subsidiary.
10:55:23 AM
MR. DAVIS further explained that an LLC is usually an investment
mechanism with a partner; however, a subsidiary - as in the
intertie example - could take in available federal funds and
issue the necessary bonding to provide the financing.
10:55:50 AM
REPRESENTATIVE GARDNER asked whether a subsidiary funded by
federal funds would still be under AIDEA's authority.
10:56:30 AM
MR. DAVIS relayed that subsidiary corporations are controlled by
the parent corporation which appoints the subsidiary
corporation's board of directors. In addition, the board of
governance process requires that meetings are open to the
public.
10:56:44 AM
REPRESENTATIVE THOMPSON surmised that a subsidiary corporation
is still subject to the rules, regulations, and restrictions of
its parent company.
10:57:03 AM
MR. DAVIS said correct.
10:57:07 AM
REPRESENTATIVE TUCK asked what AIDEA is unable to accomplish now
that it will be able to accomplish after the formation of
subsidiary corporations.
10:57:48 AM
MR. DAVIS affirmed that AIDEA has the general powers to accept
federal funds and grants, but it cannot place the funds in a
subsidiary, or transfer bonding authority to a subsidiary. A
separate subsidiary can set up an entity just to accomplish a
particular project. The agency will use subsidiary corporations
as investment tools to invest and finance in a "more standard
commercial manner."
10:58:38 AM
CHAIR HERRON removed his objection. There being no further
objection, Amendment 1 was adopted.
10:59:03 AM
REPRESENTATIVE OLSON moved to report HB 119, as amended, out of
committee with individual recommendations and the accompanying
fiscal note. There being no objection, CSHB 119(EDT) was
reported from the House Special Committee on Economic
Development, International Trade and Tourism.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB119_Bill-Projects.pdf |
HEDT 2/3/2011 10:15:00 AM HEDT 2/8/2011 10:15:00 AM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
| HB119_FiscalNote-Projects.pdf |
HEDT 2/3/2011 10:15:00 AM HEDT 2/8/2011 10:15:00 AM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
| HB119_RequestForHearing-Projects.pdf |
HEDT 2/3/2011 10:15:00 AM HEDT 2/8/2011 10:15:00 AM |
HB 119 |
| HB119_SectionalAnalysis-Projects.pdf |
HEDT 2/3/2011 10:15:00 AM HEDT 2/8/2011 10:15:00 AM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
| HB 119 - 1.21.11 Gov Transmittal LTR.pdf |
HEDT 2/3/2011 10:15:00 AM HEDT 2/8/2011 10:15:00 AM |
HB 119 |
| HB119_Amendment-Projects.pdf |
HEDT 2/3/2011 10:15:00 AM HEDT 2/8/2011 10:15:00 AM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
| HB 119 - AIDEA Response to questions.doc |
HEDT 2/8/2011 10:15:00 AM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
| HB120_SectionalAnalysis-NMTC.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
| HB120_WhitePaper-NMTC.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
| HB120_Bill-NMTC.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
| HB120_FiscalNote-NMTC.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
| HB120_RequestForHearing-NMTC.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
| HB 120 1.21.11 Gov Transmittal LTR.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
| HB 120 - AGC Support LTR.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
| HB 120 - LTRs of Support.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |